U.S Government would rather default than lose their bullion.
The Speaker of the House has a plan - apparently - that enables the debt-limit "can" to be kicked 6-weeks down the line to Nov 22nd in a "clean" bill that appears dirtied by the lack of a CR for the government shutdown (though including a broader budget talks process). Democrats are already pushing for an end-2014 debt-ceiling extension that McConnell says "wil not fly." We look forward to hearing from Boehner on how this is not a "fold" and how the rank-and-file will agree to this... see you in six-weeks... (and while stocks are incapable of discounting anything that far out, T-Bills are starting to price in that reality). But. U.S. HOUSE REPUBLICAN LAWMAKERS CONCERNED THAT CLEAN DEBT LIMIT INCREASE WOULD NOT FORCE OBAMA TO NEGOTIATE-SENIOR REPUBLICAN AIDE and HOUSE REPUBLICAN LEADERS PLAN TO PRESENT PROPOSED SHORT-TERM DEBT LIMIT HIKE TO WHITE HOUSE ON THURSDAY; WANT TO SEE WHAT OBAMA OFFERS IN RETURN-SENIOR REPUBLICAN LAWMAKER
- The ice breaks; fiscal talks set (The Hill); Ryan steps up to shape a deal (The Hill), as predicted here yesterday
- Republicans consider short-term U.S. debt ceiling increase (Reuters)
- Shutdown Standoff Shows Signs of a Thaw (WSJ)
- JPMorgan Clients in Cash as Schwab’s Options Hedge Default (BBG)
- Mitch McConnell, Senate GOP search for way out (Politico)
- Meredith Whitney Winds Down Brokerage Unit After Setting Up Fund (BBG)
- Washington Budget Chaos Keeps Fed Rates Low for Longer (BBG)
- Chinese Premier Outlines US Debt Concerns (FT)
- Saudis brace for 'nightmare' of U.S.-Iran rapprochement (Reuters)
- Obama Urges Action on Yellen’s Fed Nomination (Reuters)
- Libyan Prime Minister Ali Zidan Freed After Kidnap (WSJ)
As we have discussed previously, the "partial government shutdown" that we are experiencing right now is pretty much a non-event - especially with the un-furloughing of The Pentagon. Yeah, some national parks are shut down and some federal workers will have their checks delayed, but it is not the end of the world. In fact, only about 17% of the federal government is actually shut down at the moment. This "shutdown" could continue for many more weeks and it would not affect the global economy too much. On the other hand, if the debt ceiling deadline (approximately October 17th) passes without an agreement that would be extremely dangerous. A U.S. debt default that lasts for more than a couple of days could potentially cause a financial crash that would make 2008 look like a Sunday picnic. If a debt default were to happen before the end of this year, that would bring a tremendous amount of future economic pain into the here and now, and the consequences would likely be far greater than any of us could possibly imagine.
Five years later, while some are congratulating themselves on avoiding another depression, no one in Europe or the United States can claim that prosperity has returned. The financial system may be more stable than it was five years ago, but that is a low bar – back then, it was teetering on the edge of a precipice. Those in government and the financial sector who congratulate themselves on banks’ return to profitability and mild – though hard-won – regulatory improvements should focus on what still needs to be done. Some are pleased that the economy may have bottomed out. But, in any meaningful sense, an economy in which most people’s incomes are below their pre-2008 levels is still in recession. An The glass is, at most, only one-quarter full; for most people, it is three-quarters empty.
“Diminishing Superpower” This was the headline streaking across the weekend edition of the Jakarta Globe, one of the largest newspapers in Indonesia. The photo beneath was of Barack Obama, his lips pursed and eyes steeled as if he was fighting back tears. Or perhaps staring off into the fiscal abyss. The subheadline read: “Obama’s APEC absence symbolic of US waning influence in Asia.” It’s so obvious to everyone else that the US is in terminal decline. As history has shown so many times before, this is exactly how the end begins.
The US government's foreign policy appears to be most effective when it is shut down. First, we learned that the CIA has accelerated its training and weapons supply of Syria's Al-Qaeda insurgents only after the funding for the non-critical government functions was halted. Then, overnight, John Kerry showed that while he gives to Al-Qaeda with one hand he takes from it with two following two U.S. raids in Libya and Somalia that captured an Islamist wanted for bombing its Nairobi embassy 15 years ago. These actions "show Washington's determination to hunt down al Qaeda leaders around the globe" Secretary of State John Kerry said on Sunday. So in 15 years the then secretary of state will be proud to announce that Al-Qaeda leaders operating in and around Syria, armed with US weapons, have also been captured. And so the wheel will keep on turning.
Presented with little comment but to ask what next? The New York Mediums? The Oakland Privateers? The Cleveland Beiges? The Atlanta Cowards?
It may "not be some damn game", but this sure is some damn summary of all the latest news and developments. Via Bloomberg:
- House Democrats will attempt to use discharge petition to force House to vote on clean stopgap spending bill; 17 House Republicans would need to back the measure and 20 House Republicans have said they’d vote for a clean bill
- House in session tomorrow 10am
- White House supports House bill to retroactively pay govt staff, says Obama would veto House piecemeal spending bills
- House Speaker John Boehner says he won’t offer a clean debt limit bill, says shutdown "isn’t some damn game"
- Tea Party-backed Rep. Dennis Ross, R-Fla., says he’s in favor of spending deal that doesn’t include changes to Obamacare
There really is very little reason why this "government shutdown" cannot continue indefinitely because almost everything is still running. 63 percent of all federal workers are still working, and 85 percent of all government activities are still being funded during this "shutdown". It turns out that the definition of "essential personnel" has expanded so much over the years that almost everyone is considered "essential" at this point. In fact, this shutdown is such a non-event that even referring to it as a "partial government shutdown" would really be overstating what is actually happening. In the end, this shutdown could turn out to be very good for America. We have a government that is wildly out of control and that desperately needs to be reigned in.
The situation in DC is fluid, but here is the most coherent narrative so far from NBC Washington DC: "A woman opened fire near the U.S. Capitol after trying to ram her car into the White House gates Thursday afternoon; she was then shot. A U.S. Capitol Police officer was injured in the event, though it is not clear that the officer was shot. The incident began at about 2:30 p.m. at the White House gates at 15th and E streets, NBC News confirmed. The driver tried to ram the gates but failed, and then was pursued by Secret Service. She bailed out of her car near the Capitol building and began shooting, NBC News' Pete Williams reported. Some reports said that as many as 10 to 15 rounds were fired. The injured officer was airlifted to an area hospital. The U.S. Capitol building was on lockdown after the shooting, though that lockdown has now been lifted. Parts of Pennsylvania Avenue are still closed." According to Fox reports the woman was 18 years old and there also a child in the car. The child is said to be unhurt.
While the recent Federal Reserve inaction is bullish for stocks in the short term there are plenty of reasons to remain somewhat cautious. Stocks are overvalued, rates are rising, earnings are deteriorating and despite signs of short term economic improvements the data trends remain within negative downtrends. Investors, however, have disregarded fundamentals as irrelevant as long as the Federal Reserve remains committed to its accommodative policies. The problem is that no one really knows how this will turn out and the current assumptions are based upon past performance. Complacency is not an option; it is critically important to understand that market reversions do not occur without a catalyst. Whether it is the onset of an economic recession, a natural disaster or a financial crisis - there is always something that sparks the initial selloff that leads to a full blown market panic. With this idea in mind here are 3 rising risks that investors should be paying attention to.
Nancy Pelosi tried hard this evening (in the post WH meeting presser) to position the Democrats in order to disavow the inevitable but now Bloomberg is reporting that:
*HOUSE REPUBLICAN PLAN WOULD LINK SHUTDOWN, DEBT-LIMIT FIGHTS
House Republican leaders plan to bring up a measure to raise the U.S. debt-limit as soon as next week as part of a new attempt to force President Barack Obama to negotiate on the budget by merging the disputes over ending the government shutdown and raising the debt ceiling into one fiscal fight. This is not what most sell-side strategists expected as a base-case; in fact it is close to a worst-case for many - especially given Obama's apparent unwillingness to negotiate.
Earlier, on CNBC, Obama said he is "prepared to negotiate." As it turns out, he may have been confused about the meaning of the bolded word because less than four hours later, the White House issued a statement in which "The President made clear to the Leaders that he is not going to negotiate over the need for Congress to act to reopen the government."
Still three-plus years left in Obama’s presidency, where mediocrity has been elevated to a highly acceptable status. A good and intelligent man has proven to be an incapable leader, often by making poor choices in the advice received... However, not all has to be lost for Obama; he still has time to reweave a legacy that now appears grey and bleak. And that reweaving will not be on the domestic front; for the economic future of 80 percent of Americans has already been cast... the slope pointing downward no matter what hopeful lies are manufactured in Washington. Reweaving, for Obama, should take place at the international front; a great opening has appeared before him partly by chance and partly by what other world leaders have to gain as well.